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February 19, 2009
Fewer Employers to Adopt Automatic 401(k) Enrollment

The number of employers adopting premium 401(k) features like automatic enrollment and company matches has slowed in response to the economic climate, according to a survey by Hewitt Associates, an HR consulting firm.

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"The reality is that automatic enrollment and matching employer contributions can be two of the costliest discretionary expenditures companies incur in a given year," says Pamela Hess, Hewitt's director of retirement research. "In an effort to avoid taking more drastic measures--uch as cutting jobs or salaries--employers are opting not to add new features and/or they are temporarily suspending these initiatives in order to stay solvent in the flagging economy.”

Instead of those higher-cost features, employers are focusing their efforts on offering more lower-cost strategies, such as automatic rebalancing (a tool that helps employees regularly balance their portfolios with their target allocations) and target-date funds in an effort to mitigate immediate cost pressures and stay fiscally responsible.

Among the companies that don't currently offer automatic enrollment, only one-quarter (25 percent) are somewhat or very likely to add it for new hires, and just 15 percent are likely to adopt it for existing employees in 2009, down from 57 percent and 27 percent, respectively, in 2008.

Of those companies not planning to add automatic enrollment, more than half (55 percent) cited the increased cost of the employer match as the primary reason why they did not plan to offer it, which is up nearly 10 percentage points from 2008.

Hewitt's survey found that just 2 percent of employers have cut or temporarily suspended their 401(k) company match since the markets tumbled, and 5 percent are expected to do so in 2009. However, depending on the duration and depth of the current recession, Hewitt says it is possible that upwards of 10 percent of companies could potentially take that step in the coming 12 to 18 months.

The survey included about 150 mid- to large-sized employers.

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